ECN344
ECONOMICS OF
TECHNOLOGY AND
INNOVATION
By Aniol Llorente-Saguer
ECN344 Technology and Innovation

Instructor: Aniol Llorente-Saguer
Lecture: Thursdays 15:00 – 17:00
Office hours: Tuesdays 13:45 - 14:45 &
Thursdays 10:30-11:30
Email: a.llorente-saguer@qmul.ac.uk

Lecture videos and slides, Class Exercises and
Solutions will be available at QMplus
ECN344 Technology and Innovation


Lecture materials based on: Church & Ware 2000
http://works.bepress.com/jeffrey_church/23/
Assessment:
4
online tests – 7.5% each
 Fridays
of weeks 3, 6, 9 and 12
 One hour to complete, available 8:00 – 17:00
 Multiple choice + numerical ones (open, only solution)
 70%
final exam
ECN344 Innovation and Technology

Topics related to innovation and technology has
been studied using different approaches
 Macroeconomics
 Productivity,
 Industrial
growth, business cycles…
OUR FOCUS
economics (applied game theory)
 Game
theory models applied to market structure and
innovation, incentives to innovate, R&D expenditure,
technology adoption …
 Empirical
 Uncover
economics
empirical regularities across industries
Questions
1.
Why are markets structured as they are?

2.
3.
Seller concentration, Product differentiation, Conditions of Entry, …
How does the manner in which markets are
organized affect the way in which firms behave (and
markets perform)?
How does the behaviour of firms influence the
structure or organization of markets and the
performance of markets?
Methodology

Traditional approach: purely empirical
Structure-Conduct-Performance paradigm
 Uncover empirical regularities across industries


Key features of Modern Industrial Economics
The emphasis is on specific industries
 Models of firm behaviour (Game theory)
 Empirical work based on well-founded models


In this course: we will focus on models
Methodology

Models = simplified representation of part of the world


We need to simplify the world to think about it carefully
Goal: find general principles that help guide our thinking

Models ≠ the way the world works

Models are like maps
Methodology
Methodology
Methodology
Like maps, models should not contain too much information
In that Empire, the Art of Cartography attained such
Perfection that the map of a single Province occupied the
entirety of a City, and the map of the Empire, the entirety of a
Province. In time, those Unconscionable Maps no longer
satisfied, and the Cartographers Guilds struck a Map of the
Empire whose size was that of the Empire, and which coincided
point for point with it. The following Generations, who were
not so fond of the Study of Cartography as their Forebears
had been, saw that that vast Map was Useless, and not without
some Pitilessness was it, that they delivered it up to the
Inclemencies of Sun and Winters.“--Borges - Collected fictions
Methodology
A Model

Difficult balance: minimum amount of information
for what you want to achieve
 Map

to drive around the city vs. bar hopping
How to evaluate a model?
 Does
it relate to something I am interested in the world?
 Did I learn something about that aspect of the world?
 Is there a key element of the world that is missing from
the model that would change the conclusion?
Topics





Perfect Competition
Monopoly
Pricing Strategies
Static Oligopoly
Models
Collusion




Product Differentiation
Patents and Intellectual
Property rights
Advertising
Networks and
technological standards
TOPIC 1
PERFECT COMPETITION,
WELFARE ECONOMICS AND
MARKET POWER
By Aniol Llorente-Saguer
Based on Church and Ware, Chapter 2
Summary

Profit maximization
 Reasons
why it may not hold
 To produce or to shut down?
 Short vs Long run?

Perfect competition: Definition & Supply
 Basic
Assumptions
 Price takers ⇒ p = MC
 How to find the firm supply?
Summary

Perfect competition: market equilibrium
 Supply
= Demand
 Short vs Long run?

Welfare and market power
 Pareto
efficiency
 Total surplus as a measure of efficiency
 Measure of Market Power
Examples?
Question 1
Which of the following is NOT a necessary condition
for Perfect Competition?
a)
b)
c)
d)
Output is homogeneous
Information is perfect
Economy of scale effects are large
No entry or exit barriers
Question 2
Which of the following is NOT correct? A fixed cost...
a)
b)
c)
d)
is irrelevant for short term production decisions
is whatever is not a variable cost
usually generates economies of scale
can be sunk or avoidable.
Question 3
This graph represents the profits as a function of q.
How much should this firm produce?
π(q)
q*
q